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German ZEW Economic Sentiment is based on a monthly survey of institutional investors and analysts and their views of the German economy. A reading that is higher than the market forecast is bullish for the euro.

Here are all the details, and 5 possible outcomes for EUR/USD.

Published on Tuesday at 9:00 GMT.

Indicator Background

German ZEW Economic Sentiment surveys financial experts for their assessment of the direction of the German economy in the next six months, based on economic data including inflation, exchange rates and the stock market. This makes the index an important indicator of the medium-term future of the German economy.

What’s ailing ZEW Economic   Sentiment?  The indicator has been on a sharp slide throughout 2014 and tumbled to 8.6 points last month, down from 27.1 points a month earlier. This marked the first time that the indicator has dropped below double digits since November 2012. The  downward spiral is  expected to continue, with the  estimate for the August reading at 5.2 points.

Sentiments and levels

The much-needed  consolidation could be over. We have finally seen more than a “dead cat” bounce and after this correction, the direction remains lower. Monetary policy convergence is the key: the ECB is about to launch its program soon while the Fed is nearing the end of its QE scheme. The pair is still far from the ECB comfort zone of 1.20-1.25 and we could see a resumption of the fall, even if Yellen does her best not to rock the boat.   Most US releases have been solid, and the dollar hardly  blinked when US employment numbers disappointed last week. So, the overall sentiment is bearish on EUR/USD towards this release.

Technical levels, from top to bottom: 1.31, 1.30, 1.2960, 1.2920, 1.2860  and 1.2840

5 Scenarios

  1. Within expectations:  2.0 to 8.0: In such a case, the euro is likely to rise within range, with a small chance  of breaking higher.
  2. Above expectations: 8.1 to 12.0: An  unexpected higher reading can send EUR/USD above one resistance line.
  3. Well above expectations: Above 12.0: In such a scenario,  a second resistance line might be broken.
  4. Below expectations:  -2.0 to 1.9: A sharper decrease than forecast could  push the pair below  one support level.
  5. Well below expectations: Below -2.0: A very  weak release  could rattle the markets and EUR/USD could break  a second  support level.

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